VeriPlan automatically tracks returns lost to investment sales loads
Many justifications for investment sales load charges might be offered by financial advisors during the sales process, but once a front-end load is charged, your diminished portfolio will ‘forget’ about the load charge for the rest of your life.
Loads become ‘phantom’ assets, which are rarely spoken of or measured subsequently, even though you may remember that you paid them in the past. (See: Can you really get free and objective investment advice, when you pay investment sales loads? and Pay less to get more)
Note that, back-end loads create more semi-visible losses. With a 2% back-end load, for example, the charge will remain visible while you retain a particular holding. However, once you sell and reinvest that asset, then the value of the back-end load will slip away. When your reduced investment funds are reinvested elsewhere, it become the same kind of phantom asset as a front-end load. Particularly, if you do this frequently over your life, the lost value could grow to be very substantial.
When you pay a front-end load, the future performance of your reduced investment portfolio may be benchmarked against some passive index, but the front-end load charges that you paid would no longer be a part of this evaluation. However, VeriPlan will not forget about the loads you have paid and will pay in the future. VeriPlan does not forget these phantom lost assets and it automatically calculates their value across your lifetime. (See: VeriPlan’s personal financial planning software helps you to understand the full lifetime costs of your excessive investment expenses)
To illustrate the possible opportunity costs of paying loads, VeriPlan projects the annual value of returns lost to sales load cost-inefficiencies, which exceed sales load charges that you consider to be reasonable. It automatically calculates what you could have been earned cumulatively, if instead you had kept, invested, and compounded these sales load charges using a more cost-efficient strategy.
Concerning how VeriPlan projects cost-inefficiencies related to sales loads, VeriPlan automatically tracks and projects load costs and capital gains taxes associated with: A) any reinvested capital gains distributions that you may receive related to the individual investments already in your current portfolio and B) any future assets that you may acquire when you have positive annual cash flow. To accomplish this VeriPlan tracks and accumulates a separate phantom asset associated with your investment load payments across your lifecycle. This phantom sales load asset is modeled like other investment cost-inefficiency assets in VeriPlan.
For reinvested capital gains distributions related to your asset holdings, VeriPlan automatically charges the same load percentage that you have paid to acquire that asset in the past. For new asset purchases, VeriPlan assesses load charges for each asset class. VeriPlan calculates the weighted average load that you have paid in the past for all holdings within each of your cash, bond / fixed income, and stock / equity financial asset classes. Then, VeriPlan uses this figure to project future load charges.
VeriPlan presents information about both your past and future sales load costs, because both are important to understand. However, sales loads that you have paid in the past represent phantom assets that are entirely gone from your portfolio, and which you cannot retrieve. Regarding sales loads that you may pay in the future, you can and should control these potential future costs.
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Tags: personal financial planning
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